Finance Tools/Compound Interest Calculator
Compound Interest Calculator
Calculate compound interest and investment growth
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Frequently Asked Questions
Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest. For example, $10,000 at 5% for 10 years yields $15,000 with simple interest but $16,289 with annual compounding—a $1,289 difference.
More frequent compounding generates higher returns because interest starts earning interest sooner. For $10,000 at 5% over 10 years: annual compounding yields $16,289, monthly yields $16,470, and daily yields $16,487. The difference is more pronounced with higher rates and longer periods.
The Rule of 72 estimates how long it takes to double your money by dividing 72 by your interest rate. At 6% interest, it takes approximately 72÷6=12 years to double. This rule is most accurate for rates between 6-10% and provides a quick mental calculation for investment planning.
The amount depends on your timeline and expected returns. At 7% annual returns: starting from zero, you'd need about $381/month for 40 years, $820/month for 30 years, or $2,026/month for 20 years to reach $1 million. Starting earlier dramatically reduces the required monthly contribution.
Historical stock market returns average 7-10% annually over long periods (accounting for inflation, it's about 7%). Savings accounts offer 3-5%, bonds 4-6%, and diversified portfolios typically 6-8%. Use conservative estimates for planning—it's better to exceed projections than fall short.